By Lucia Mutikani WASHINGTON, Feb 7 (Reuters) - U.S. job creation slowedsharply over the past two months, turning in the weakestperformance in three years and raising the prospect that theeconomy may be losing momentum. At the same time, however, the unemployment rate hit a newfive-year low of 6.6 percent in January even as Americans piledback into the labor market to search for work. The Jekyll and Hyde report from the Labor Department onFriday whipsawed U.S. markets in early trade. Many economistscautioned against reading too much into it given the extremeweather that has hit much of the nation this winter. "It supports the view that momentum is slowing in the firstquarter, but it's too early to draw conclusions and we shouldnot be too pessimistic either," said Thomas Costerg, a U.S.economist at Standard Chartered Bank in New York. Nonfarm payrolls rose only 113,000 last month after a meager75,000 gain in December, the report showed. Economists hadexpected payrolls to rise 185,000 in January and had looked fora big upward revision to December. Instead, December's figure was revised upward by just 1,000,although November's count was raised by 33,000 to 274,000, thebiggest gain since February. Taken together, job growth averaged just 94,000 in Decemberand January, a big slowdown from the 204,000 average for thefirst 11 months of last year. While weather was believed to have weighed on hiring inDecember, it did not appear to be a major factor last month. There were strong gains in the weather-sensitiveconstruction sector, and while a survey of households found262,000 Americans were unable to work due to the weather, thedepartment said that was in line with historical trends. The second straight month of weak hiring - marked bydeclines in retail, utilities, government, and education andhealth employment - could be a problem for the Federal Reserve,which is scaling back its monthly bond-buying stimulus program. However, its next policy-setting meeting is not until March18-19. By then, the economic clouds may have cleared. Most economists stuck to predictions that the central bankwould cut its monthly purchase pace by another $10 billion inMarch, as it did last month and the month before. "We don't think the January report is enough by itself tostop the Fed from tapering again," said Julia Coronado, chiefNorth America economist at BNP Paribas. She said, however, that if hiring in February also provesweak and equity markets decline, the Fed was likely to show"more patience" in tapering its stimulus. The drop in the jobless rate left it flirting with the 6.5percent level that the Fed has said would trigger discussionsover when to raise benchmark interest rates from near zero. But policymakers have made it clear that rates will not riseany time soon even if the unemployment threshold is breached,and they seem certain to revisit their guidance on policy.

U.S. stock futures dropped sharply when the data wasreleased, but the market opened higher and major indexes closedwith gains of more than 1 percent. Similarly, money flooded into the safety of the bond marketbut the flow soon ebbed, leaving bond prices up but not assharply. The dollar sold off against the euro, but that tradealso later eased.